Topple Tea Houses, Inc., operates seven restaurants in the state of Pennsylvania. The manager of each restaurant transfers funds daily from the local bank to the company's principal bank in Harrisburg. There are approximately 250 business days during a year in which transfers occur. Several methods of transfer are available. A wire transfer results in immediate availability of funds, but the local banks charge $5 per wire transfer. A transfer through an automatic clearinghouse involves next-day settlement, or a 1-day delay, and costs $3 per transfer. Finally, a mail-based depository transfer check arrangement costs $30 per transfer, and mailing times result in a Bday delay on average for the transfer to occur. (This experience is the same for each restaurant.) The company presently uses depository transfer checks for all transfers. The restaurants have the following daily average remittances:

a. If the opportunity cost of funds is 10 percent, which transfer procedure should be used for each of the restaurants?

b. If the opportunity cost of funds were 5 percent, what would be the optimal strategy?

Answer rating: 100% (QA)

a If the opportunity cost of funds is 10 percent which transfer procedure should be used for each of ... View the full answer